“The deficit myth is the grosses lie ever enforced upon the people and it has been sold by exploiting people’s economic illiteracy.” So says Conservative economist and journalist Ramesh Patel in the Huffington Post. He identifies three major lies at the heart of Tory attacks on Labour’s record, based on data from IMF, OECD, OBR, HM Treasury, and ONS.
CLAIM 1 The last government left the biggest debt in the developed world.
The debt was high because we are a big economy. As a proportion of GDP, UK debt was actually the lowest in the G7 major economies. Labour reduced debt from 42% in 1997 to 35% at the start of the crisis.
CLAIM 2 Labour created the biggest deficit in the developed world by overspending.
In 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget) and by 2008 it had fallen to 2.1%. The IMF say that the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending.
CLAIM 3 Our borrowing costs are low because the markets have confidence in George Osborne’s austerity plan and without it the UK will end up like Greece.
The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased. As a result, the demand and price for bonds have increased and as there is inverse relationship between the price of bonds and its yield (interest rate) the rates have fallen. The UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off – which increases the price of bonds and reduces the effective rate. The UK has not defaulted on bonds in 300 years, which makes us a safe bet.
“Cameron is playing the blame game to depress confidence and growth to justify austerity. Secondly, to use austerity as justification for a smaller state to gain lower taxes. Thirdly, to paint Labour as a party that can not be trusted with the country’s finances again. Therefore, we Conservatives will win a second term because, people vote out of fear.” It seems even some Tories are starting to understand that the austerity agenda hurts business, notwithstanding the latest economic figures – Britain is still bumping along the bottom under the Tories.